What is the reason behind the sudden rise in UK energy bills?
Earlier this year, Ofgem announced that around 15 million families would see their energy bills rise by at least £139. This price increase is largely driven by a 50% rise in energy costs.
It comes as gas prices have hit record highs during the last six months, with the world now returning to normality in the aftermath of the Covid pandemic.
Escalating global fuel prices are responsible for driving up inflation levels. And these soaring energy costs will be the biggest increase in a decade.
So, we look at why energy bills are skyrocketing, and what this means for the price cap.
The energy price cap controls the cost of gas and electricity in the UK. Established and regulated by Ofgem, the price cap was intended to ease the financial burden of increasing energy costs for consumers.
Ofgem adjusts the price cap twice a year. This is so energy market costs can be addressed every summer and winter. Each adjustment is based upon a typical consumer using a medium amount of energy.
The prices of standard and default tariffs are variable and energy companies can alter the amount they charge. But the price cap means that energy bills, such as standing charges, won’t suddenly increase.
From October, energy customers that are signed up to default tariffs will see a steep increase in energy prices. This will be the sharpest jump since the price cap was introduced in 2019.
The prices hike will likely push an extra 488,000 UK homes into fuel poverty. More than four million people in the UK are already estimated to be behind on household bills.
These unprecedented times have affected many factors of day-to-day life, including energy prices. The last six months saw gas prices hit a record high, as inflation peaked amid the easing of national Covid restrictions.
Inflation of fossil fuel prices only makes other low carbon options more appealing. Last year renewables generated 43% of the UK’s electricity, but fossil fuels continued to contribute 38.5%.
Experts and market watchers have noted that the energy price hike has arrived at the worst possible time. Expected to reach its highest point in October 2021, it will coincide with the phasing out of the government’s furlough scheme. The rising cap also comes as the UK government strives to reach net zero emissions targets.
The announcement of the COP26 climate conference – to be held in Glasgow this November – has only served to add further pressure to the situation.
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